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Civil Law

Explanation of Article 338

Explanation of Article 338

This article begins by stating the provisions of the fourth obligation of the seller under the contract of sale, which is the warranty against hidden defects. The contract of sale is based on the premise that the sold item is free from defects without the need for a stipulation, because whoever is obliged to transfer ownership of something must transfer beneficial possession that enables the transferee to use the item for its intended purpose. Therefore, the seller must guarantee the defects that hinder this use.

The first paragraph states that the seller is obliged to guarantee the defect, and the defect that the seller guarantees must be significant. The criterion for this is that it reduces the value of the sold item or its intended benefit. The standard set by the paragraph for the defect is objective, not subjective. Thus, if the defect reduces the value of the sold item, the seller guarantees it even if it does not reduce its intended benefit; similarly, if it reduces its intended benefit even if it does not reduce its value.

To reinforce this standard, the paragraph specifies three things that can define the intended benefit that the seller guarantees its deficiency: it may be explicitly stated in the contract, inferred from the nature of the item, such as a residential house whose nature determines its intended purposes, or inferred from the purpose for which the item is prepared, like a horse prepared for racing or a machine prepared for plowing or harvesting.

The end of the paragraph clarifies that the seller guarantees the defect even if he was not aware of its existence, because the deficiency affects the buyer whether the seller knew of the defect or not.

The second paragraph explains the effect of the seller's warranty for the defect; if a defect appears in the sold item and meets the conditions set forth in Article (334), the buyer has the option between two things:

The first option: Requesting the rescission of the sale, and the general rules of judicial rescission in Article (107) apply to this; the court, at its discretion, may refuse rescission if the deficiency caused by the defect is of little importance, limiting the buyer's right to compensation according to the second option below.

The second option: Retaining the sold item and claiming the price difference from the seller, which is what jurists refer to as "compensation for the defect," meaning the ratio of the value of the item in its sound condition to its value with the defect from the price; if the value of the item in its sound condition is one hundred and its value with the defect is eighty, the ratio is one-fifth; thus, he can claim one-fifth of the price from the seller.

The end of the paragraph states that the seller can avoid rescission or bearing the price difference if he fulfills his obligation specifically by providing a non-defective substitute for the sold item, or if he repairs the defect in a short period without harm to the buyer, as the reason for requesting rescission or the price difference has been removed.

What the paragraph has decided in this regard is merely an application of the general rules, as the debtor - the seller here - can avoid rescission, which is the first option, or execution by compensation, which is the second option, if he fulfills his obligation specifically without delay that harms the buyer.

If the sold item is specified by its type and description, and the seller fails to fulfill the committed specifications, the buyer, according to the general rules of breach of obligation, can request specific performance if possible, in addition to his right to request rescission or execution by way of compensation, which is known among jurists as the "option of substitution in description."

The third paragraph states that the buyer has the right to compensation for any damage caused by the defect, whether he chooses rescission, claims the price difference, or specific performance by providing a substitute or repairing the defect; this is merely an application of the general rules of breach of obligation set forth in Articles (107, 109).

From the above, it is clear that one of the conditions for the defect that the seller guarantees is that it must be significant, and in this regard, it is of two types:

The first type: A non-significant defect, which does not reduce the value of the sold item or its benefit; the seller does not guarantee it.

The second type: A significant defect, which reduces the value of the sold item or its benefit, and the seller guarantees it, and it is of two degrees:

A- If the deficiency caused by the defect is minor, meaning of little importance, the buyer is entitled to compensation without his right to rescission.

B- If the deficiency is substantial, the buyer has the option between rescission and compensation.

In both cases of significant defect, if specific performance is possible, the seller can avoid the request for compensation or rescission by providing a similar substitute, and the buyer can also request specific performance if possible.

Related To

Article 338

  1. A seller shall, upon delivery, warrant that the sold item is free from any redhibitory defect that would diminish its value or render it unfit for its intended use contrary to what is specified in the contract or what can be perceived according to its nature or its particular use. The seller shall be liable for such defect, even if he is unaware of its existence.

  2. If the sold item proves to be defective, the buyer shall have the right to either request termination of the sale or to retain the sold item and have recourse against the seller for the price difference, which is the difference between the sale price of the item with and without the defect. The seller may avoid payment of such difference by providing an identical item free from defects.

  3. The buyer shall, in the cases provided for in paragraph (2) of this Article, have the right to compensation for any harm he incurs, if applicable.